Severe shortage of student accommodation offers opportunity for investors

Ireland’s economic and demographic profile makes student housing an attractive asset class for investors. However, the supply of purpose-built student accommodation (PBSA) acutely mismatches demand, with current stock able to accommodate only 50 per cent of the current level of student numbers across Ireland’s four largest third-level education locations (Dublin, Cork, Galway and Limerick).

Decades of investment in education and research and development, along with membership of the European Union and the euro, have put Ireland in a leading position to attract international investment across a number of high value-adding sectors; in particular medical technology, pharmaceuticals, technology, media and entertainment (TMT), financial and professional services.

These sectors have been key to driving employment in recent years and have in turn been dependent on the quality of graduates emerging from Irish third-level institutions. The number of people in the 14-19-year-old age category has increased by 10.3 per cent between 2016 and 2022, indicating the increased level of demand for third-level education that is to come over the next five to 10-year period alone.

The full-time undergraduate and postgraduate student population of Ireland has increased 23 per cent over the last 10 years. Looking ahead, current forecasts indicate that there will be between 39,500 and 48,900 additional full-time undergraduate and postgraduate students in higher education by 2030-2031 compared with 2021-2022. The fact that the number of people aged 15-19 has increased by just over 10 per cent since 2016 puts the probability of these forecasts on the upside.

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Given the supply-and-demand dynamics, Knight Frank expects PBSA investment to be a key target for investors. While there will be some churn in existing portfolios, due to the lack of supply coming through, the majority of activity over the next 12 months will come from new site purchases and planning applications.

While there is significant demand by investors in this sector only €688 million has been invested in the student-housing market in Ireland over the last five years due to lack of available product. We expect this to be considerably higher over the next five years.

There is a limited pipeline of beds either under construction or in planning in the short to medium term, with construction costs leading to viability issues, reflecting the wider trend across the real-estate market. A number of on-campus projects are stalled at a time when demand significantly exceeds supply.

The pricing of bed spaces reflects the shortage in demand, while at the same time, newer schemes (second generation), many of which provide a variety of amenities, are attracting higher rents than older accommodation.

This is a very important category of housing supply, at a time when all housing categories are undersupplied. It is essential that measures are put in place to speed up the delivery of new student housing, ensuring that Ireland remains a top location to attract international students and can accommodate domestic students, all of whom are essential to maintain Ireland’s position as a leader in terms of education and, in turn, in terms of attracting high value-adding sectors and job creation.

Joan Henry is chief economist and director of research at Knight Frank Ireland.